Mario Gabelli on CNBC saying he doesn't understand why GOGO is moving up. I agree.
Submitted on 2014/09/17 at 1:38 pmGOGO/DM – They are up to about 2,500 planes that fly an average of 300 passengers a day so 275M chances a year to make a sale. Current sales are $328M in 2013 up from $233M in 2012 and trending to $400M this year for 20% growth and they don't make any money (building phase) but they are only valued at $1.5Bn, which is 4x current sales – very cheap for a tech company. Their contracts run 5-10 years and they have 80% of North America so it's simply not possible for anyone to compete with them this decade which means, like cable companies in the 80s, their investment in infrastructure will pay off huge. They have $200M in cash and are burning about $30M per Q so a long time before they need money (if ever again). So, short story is there's a ton of potential and also a possible buyout at this price from one of the internet carriers down the road as GOGO is pulling in about $9,000 per flight, so about 1/3 of all the people on the plane use it and it's trending up. If I were VZ, and I wanted a way to get in front of 275M people and convert 20M of them, I could pay the industry avg $300 per subscriber ($6Bn) or I could buy GOGO for $2Bn…
Submitted on 2014/09/18 at 7:55 amGOGO/8800 – As I said, they have 80% of US flights under contract through 2020 so, even if T does come up with something better (they have nothing now, just talk) and convinces carriers to switch in droves – it will be a long time before it hurts GOGO. Also, while I can get on a plane and not have wifi – my kids consider it torture and, for now, they don't make that decision so they suffer but, as those kids get older – I think there will be more and more GOGO customers every year. Even I do it once in a while – when I have a business reason. Apparently though, 1/3 of the people on the plane are already doing it and, if I were the airline (who get a cut), I'd start making it an add-on choice people can make with their tickets.
Don't forget, T also said we'd have video phones 20 years ago and they said we'd all have high-speed fiber and they said we'd have better cell-phone reception and they said they'd lower the bills if we stop net neutrality, etc. etc….
As it turned out, T gave up on their idea for competing with GOGO because GOGO has locked up too many contracts for it to be worthwhile. We had sold 10 of the Feb $17 puts for $2.20 in the old Income Portfolio on 9/17 for a $14.80 net entry and today they are at $16.26 so closing around 0.75 for a 65% gain is not bad and I think our $15 floor target was a good one.
So, for the LTP, let's sell 10 2017 $15 puts for $4.40 and buy the $20/25 bull call spread for $1.20 so we still have a net $3.20 credit for a net $11.80 entry (worst case) on 1,000 shares with the upside of $8,200 at $25.
